Financial Literacy - Smart borrowing
Consumers share their lending woes

The dark side

Here is a view from the other side of the desk.

Despite what you may think, we didn't really want borrowers with "good" credit. We wanted those who are described in a politically correct way as having "less than perfect" credit.

Let's take the case of Mr. LTP (for less than perfect).

In an environment where the best mortgage rate was about six percent, Mr. LTP could qualify for a 9 percent mortgage. But we wouldn't tell Mr. LTP that. Instead, the conversation would go like this:

"As you know, Mr. LTP, your credit is not that good. You have had plenty of potholes in your credit road," we begin. Mr. LTP would just stare at the floor and nervously shift his cowboy boots.

"But we (always use the pronoun we) were still able to qualify you for a mortgage."

"You were?" Mr. LTP jumps to his feet looking like a guy ready to give someone a bear hug.

"Yes, it is at an 11 percent rate …"

At this point, Mr. LTP is no longer listening. He has only heard the magic word "Yes." Mr. LTP had been afraid that he would be rejected, yet again.

What he doesn't realize is that we will charge him a 4 percent origination fee instead of the 1 percent or less fee that we would charge our best borrowers.

To make matters worse, we would also charge Mr. LTP a yield-spread or Service Release Premium (SRP) on the other end.

Even without considering the extra fees we would charge, over the life of a 30-year fixed-rate loan on $100,000, the difference between a 9 percent interest rate and a rate of 11 percent (a mere two percentage point difference) would be an additional $53,000. That is more than Mr. LTP would earn in over two years.

Often, those who can afford the least pay the most.

Just one of the stories on how we burned borrowers from my book "Kickback: Confessions of a Mortgage Salesman."
-- Ted Janusz

Family misfortune

About four years ago, I received a lump sum amount of $20,000 for back-pay from Social Security.

That was my only chance to get me started on building my house. I have about one and a half acres and a very old mobile home that needs to be torn down because of mold, termites and just in bad shape.

About a month after I got the money, my daughter asked me if she could borrow about $10,000 to buy a Chevy Tahoe. Also, I had put the money in her bank account because the business she was in required her to have three months of income saved up before she could get her license, and she had asked me if she could put it in her account to help her. I did.

The day she called me for the loan, I was shocked that she would even ask me, especially knowing how important it was to me to get my house. I hesitated and said, "Now you know that is for my house."

Well, she asked again and said she promised she would pay it all back in five months, and that she would do whatever she could to pay me back sooner even if it meant getting a loan.

I thought, well I'll just have to wait five more months to start my house. I told her OK, even though I had this sick feeling in my stomach. I believed her and she sounded so sincere and grateful.

That was the beginning of our problems. To pay the money back she would just have to put the money back into her account. She agreed to pay at least $1,500 on the 15th of each month. She said it was in a high-interest savings account.

I would call her once in a while to see if she had made a payment. She would tell me not yet, or that something came up. I also asked her how much interest had been earned so far. She would get so defensive and upset. I do not know why!

Rather than argue with her, I told her that I wouldn't call anymore, and I would just get the money on the 15th of September, which gave her an extra month.

The day finally came. I said to her, "So how much of the money have you put back in the account?" She said, "None of it." I asked her why not. She said, "I don't know. Things came up."

The next day I had her withdraw the balance of what was left in the account and put it in my checking account.

We did not speak for over two years. I felt so used and like she didn't care about me at all. This was such a deep hurt because we used to be so close.

As far as paying back the money, she started paying $200 a month shortly after that day. It's finally paid off now, but I don't have a lump sum anymore to start a house.

I still live in this old rundown mobile home. I am 54 years old and on disability. I won't have another chance to have that much money at once and I don't have enough to live on to put any in savings, especially at my age.

I would never ever recommend that anyone loan money to a relative! To this day, I will always wonder why she treated me like that. You would think that a relative would be sure to repay a loan more than someone who is not a relative. For some reason, it's not that way.
-- Karen


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